Wells, William H.

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Georgia Southern University: Digital Commons@Georgia Southern

Georgia Southern UniversityDigital Commons@Georgia SouthernBusiness in Savannah Articles Business, College of - College Publications7-13-2011Credit-Card Debt Continues to Fall, Reaching$790.1BWilliam H. WellsFollow this and additional works at: https://digitalcommons.georgiasouthern.edu/savannahThis article is brought to you for free and open access by the Business, College of - College Publications at Digital Commons@Georgia Southern. It hasbeen accepted for inclusion in Business in Savannah Articles by an authorized administrator of Digital Commons@Georgia Southern. For moreinformation, please contact digitalcommons@georgiasouthern.edu.Recommended Citationhttp://coba.georgiasouthern.edu/pdf%20files/2011_07_13_Wells_Credit_Debt.pdfBusiness in Savannah | businessinsavannah.com | 912-652-0300 Wednesday, July 13, 2011 | 9In September 2008,credit-card debt reacheda whopping $975.7 billion.By April 2011, that totalhad fallen by$185.6 billionto $790.1billion.Remarkably,the declinein creditcard debtcontinueswhile totalconsumerdebt is increasing.In the first quarter of2011, total consumer creditrose 2.4 percent while credit-card debt fell 4.8 percent.The reduction in credit-card debt may be attributedto a single goal, achievedthrough two pathways.Consumers may reducedebt by paying down bal-ances or walking away fromtheir obligations.In the later case, banksare forced to charge offdelinquent balances. Theresult is the same— lowercredit-card debt.While it is impossible todefinitively determine theimpact from either cause,recent signs suggest con-sumers are taking the highroad and paying down theircredit-card balances.TransUnion recentlyreported that credit-carddelinquency rates havefallen to the lowest levelsin nearly 15 years. Thisdecline is attributed to agrowing consumer desireto reduce debt and lenders’tight credit policies.However, some evidenceindicates many consumersare choosing to pay theircredit-card balances overother debt obligations. Inan earlier report, Tran-sUnion announced thatborrowers are, increas-ingly, electing to makecredit-card payments whilefalling behind on mortgagepayments.SeanReardon, authorof the TransUnion study,states, “The latest data fromour study show that thenew payment hierarchy haspersisted for longer thanmany industry experts ini-tially believed, and providesevidence that consumerscontinue to adjust their pay-ment behavior in response totheir economic and personalfinancial environment.”The study reports that inthe third quarter of 2010,7.4 percent of consumerswere current on their cred-it-card debt but delinquenton mortgages. For the sametime period, 3.03 percent ofborrowers were current ontheir mortgages and delin-quent on credit cards.The long-held belief thathome ownership is a sacredinvestment, providing sta-bility, defense against infla-tion and a retirement nestegg has been shattered.Employment and infla-tion uncertainties have ledmany owners to reevaluatetheir priorities.Credit cards providesecurity in the form ofready purchasing powerfor essentials. Mortgageobligations become lessimportant in the face ofcontinuing declines inproperty values.These factors are affect-ing credit-card markets.You have probablynoticed a recent increase inthe volume of mail deliveredto your home.Witness theresurgence of the ubiquitouscredit-card offer. Banks are,once again, aggressivelycourting qualified bor-rowers. Earlier this week,TheWall Street Journalreported: “U.S. credit-cardcompanies mailed 1.4 bil-lion offers for new creditcards in the first quarter of2011, a 69% jump from826million a year earlier.”Today’s credit card offersdiffer noticeably fromoffers of the past. Longperiods of 0 percent arefairly standard. Almostall offer balance transferoptions but almost alwayscharge a fee ranging from3-4 percent of the trans-ferred amount.Most significantly, inter-est rates are increasing.Even though credit cardcompanies target indi-viduals with higher creditscores, the cost of creditcard debt is high.What does this mean forconsumers, today?Opportunities exist foryou to reduce your credit-card payments and, or,more quickly pay downyour debt by transferringbalances and taking advan-tage of 0 percent offers.But be wary.Banks charge a transferfee (prepaid interest), andstandard interest rates maybe higher than your currentrate. If you fail to pay downyour credit-card debt, youmay end up paying moreinterest, not less.William H. Wells is theassociate dean and and anassociate professor of financefor the College of BusinessAdministration for GeorgiaSouthern University. Youcan contact him at wwells@GeorgiaSouthern.edu or at912-478-5432.Credit-card debt continues to fall, reaching $790.1BBiS EAGLE EXECUTIVE BRIEFINGSWilliamWellsRemarkably,the decline incredit card debtcontinues whiletotal consumerdebt is increasing.Courtesy of Clipart.com

Credit-Card Debt Continues to Fall, Reaching $790.1B

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Credit-Card Debt Continues to Fall, Reaching $790.1B

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